TMI Blog2007 (5) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 realized on the sale of the assessee s building "Bhau Mansion" attracted the provisions of section 50 of the Income-tax Act on the ground that the said Bhau Mansion was a depreciable asset, ignoring the fact that Bhau Mansion was always a building let out uninterruptedly for the past 20 years to UCO Bank, the rental income from which was consistently shown and also assessed under the head "Income from house property" and was therefore not a depreciable asset. iii. erred in holding that the provisions of section 112( d ) were not applicable to the long-term capital gains declared by the assessee. iv. erred in denying the assessee s claim under the head "Income from house property" of loss of Rs. 55,087 on municipal taxes paid on the vacant property. v. erred in upholding the ad hoc disallowance of Rs. 25,000 under section 14A, only on presumptions and conjectures that the assessee would have incurred some expenditure to earn income from dividends." 2. The facts relating to controversy involved in Ground Nos. 1 to 3 are that the assessee is a partnership firm. For the assessment year under appeal, it filed the return of income declaring total income at Rs. 85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assessment year 2001-02 and onwards the assessee has not claimed depreciation on Bhau Mansion in the returns of income. Bhau Mansion usage The building Bhau Mansion, was used for the purposes of letting out. The Bhau Mansion was not use for the purposes of business of the assessee firm. Bhau Mansion was wholly let out to UCO Bank from the year 1964. This is evident by a lease agreements with UCO Bank dated 20-6-1964 and 30-10-1987. Income from Bhau Mansion has always been shown, in the return of income, and assessed under the head Income from House Property . The income from Bhau Mansion has never been assessed under the head Profit and Gains of Business or Profession ." 3. The aforesaid submission of the assessee were considered by the Assessing Officer in para 2.1 of the assessment order. After analyzing the provisions contained in section 50 of the Income-tax Act, 1961, the Assessing Officer vide Note sheet noting dated 22-11-2005 asked the assessee why not treat the long-term capital gain on sale of house property as short-term capital gain as per provisions of section 50 of the Income-tax Act, 1961. The assessee vide letter dated Nil have made submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of depreciation in the Return of Income and Assessment Order respectively, is not enough to convert the property, undoubtedly a capital asset, into a depreciable asset as per section 50 of the Income-tax Act as the said property was never "used for the purpose of business or profession" and in that sense, never depreciated in terms of section 32. Attention was also invited to Rule 5 of the Income-tax Rules, relating to rate of depreciation on a block of assets, which stipulates "the written down value such block of assets as are used for the purposes of the business or profession of the assessee at any time during the year". It was also contended that if the asset on which depreciation is allowable is not used for business but for some other purpose, depreciation cannot be allowed thereon under section 32 and the said asset cannot be considered as depreciable asset for the purpose of section 50 of the Act. Before the CIT(A) it was contended that the mere fact of depreciation having been claimed and allowed on an asset does not make the asset a depreciable asset. Without prejudice to the above submissions, before the CIT(A) it was also submitted that the Assessing Officer e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion, the ld. CIT(A) verified the assessment record, from which, he noted that the property in question was acquired on 5-7-1923. By a deed of transfer dated 22-10-1963, the surviving heirs of the original purchasers transferred the said property to three partners in the firm of M/s. Narotamdas Bhau and accordingly, it became the property of the assessee firm. Therefore, it is clear that the assessee firm had no connection with the said property prior to 22-10-1963 though the erstwhile owners appear to be related to the then partners of the assessee firm. Each and every contentions of the assessee were considered in paras 3.1 to 3.12 of the impugned order. Finally, the CIT(A) upheld the action of the Assessing Officer treating the property as a depreciable asset and treating the gain arising out of transfer of the said property as short-term capital gain under section 50 of the Act. 9. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 10. At the time of hearing before us, the ld. Counsel for the assessee reiterated the submissions made before the CIT(A). He fairly admitted that depreciation was claimed right from the beginning over 40 years and sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial provision for computation of capital gains in case of depreciable assets. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications : (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely : ( i )expenditure incurred wholly and exclusively in connection with such transfer or transfers; ( ii )the written down value of the block of assets at the beginning of the previous year; and ( iii )the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital asset. (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in section 112( d ) are applicable to the long-term capital gains and not in respect of short-term capital gain. In view of this, Ground Nos. 1 to 3 are dismissed. 13. With regard to Ground No. ( iv ), the Assessing Officer computed the income of the property at Nil for the details reasons given in para 4.0. The assessee has claimed loss on account of income from house property at Rs. 55,087. The assessee has claimed long-term capital gain on sale of house property namely, Bhau Mansion. Since there is no income from this property, the Assessing Officer did not allow loss. On appeal, the CIT(A) upheld the action of the Assessing Officer. 14. The ld. Counsel for the assessee submitted that the loss under the head House property amounting to Rs. 55,087 on account of municipal taxes paid on the vacant property was rightly claimed and the ld. CIT(A) is not justified in refusing the same on the ground that income at Rs. Nil was rightly assessed by the Assessing Officer under the head Income from house property . 15. On the other hand, the ld. D.R. contended that the assessee is not disputing the head of income i.e. Income from house property . Therefore, the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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